Why Do IT Companies Deduct Gratuity from Salaries? Seeking Clarity on This Practice

Dear all,

I have a doubt about gratuity. Actually, gratuity is given to employees who have completed 5 years of continuous service as stated in the Gratuity Act, 1972. However, in IT companies, gratuity is deducted from the basic salary of the employees at a rate of 4.81% of Basic Pay.

I am curious why this deduction is being made. Gratuity is supposed to be one of the benefits provided by the organization to its employees. So, why are these IT companies deducting it from their employees' salaries? What is the reason behind this practice?

Please clarify this for me.

If your salary breakup states CTC (Cost to the Company), it means that any cost the company incurs for the employee will be mentioned, including gratuity as well.

Hi,

They are deducting since it's a part of CTC (cost which the company incurs in employing a person), which includes contributions to various funds (like PF, ESIC, etc.) of the employee and employer both.

Swati

That's true that Gratuity is part of CTC. However, when an employee leaves the company before completing a 5-year term, the employer has to return the amount deducted per month from their salary in the name of Gratuity. This accumulated amount is to be given during the Full and Final Settlement.

Regards,
Ajay

Dear Saravanan,

Swarna, Swati, and especially Ajay are correct on the point of CTC as well as gratuity. What Ajay has stated is important and considerable. Many companies have the same practice, but at the time of payment in the form of full and final settlement, it is easy to forget to disburse the gratuity payment that was deducted from the employee's salary, particularly for those with less than 5 years of service.

Well done, Ajay.

Regards,

KIRAN KALE